Intellectual Property Services

  • Understanding of the service

Intellectual property has been recognized as a very important asset for any business now-a-days. Henceforth, Intellectual property rights are also protected by a statutory law enacted by the Central Government. There are majorly four Intellectual Property Right acts in India namely, Patents Act, Copyright Acts, Trade mark Act and Design Act. Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. Some of the well known Intellectual property rights are:

  1. know-how,
  2. patents,
  3. copyrights,
  4. trade marks,
  5. licences,
  6. franchises or
  7. any other business or commercial rights of similar nature

Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. in India, legislations are made in respect of certain Intellectual Property Rights (i.e., IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services. (para 9.1, Circular no. 80/10/2004-S.T., dated 17-9-2004)

Under the regime of Service Tax post 1-7-2012, temporary transfer or permitting the use or enjoyment of any intellectual property right has been brought within the ambit of Declared Services.

Temporary transfer or permitting the use or enjoyment of any intellectual property has been a taxable service since 10-9-2004.  However, earlier only Intellectual property recognised by law was taxable.  The position was confirmed by Circular No. 80/10/2004-S.T., dated 17-9-2004, [annexed as Para no. 9.11.4 to this chapter] wherien it was provided that in India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services.” 

However, post enactment of Finance Act, 2012, all intellectual properties, whether recognized by law or not have become taxable. The understanding has been clarified vide Taxation of Services – An Education Guide dated 20.06.2012 [Para 6.3.2.] that since there is no condition regarding the law under which an intellectual right should be registered, temporary transfer of a patent registered outside India would be covered in this entry. However, it will become taxable only if the place of provision of service of temporary transfer of intellectual property right is in taxable territory.

  • Accounting Codes

Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:

 

Tax Collection of Service Interest and penalties on such service
00440278 00440279

  • Taxability as settled by precedents / Circulars / Trade notices

Activity Whether falls within the scope of present service Reference
Appellant developed a project and sold it to the other party by transferring the ownership. The tribunal held that in the circumstances agreement is for transfer of technology and not for providing any technical know how. No AkshOptifibers Ltd. v CCE, Jaipur 2006 (4)STR 156

 

Providing hallmark by BIS No Bureau of Indian Standards v CST, Chennai 2011 TIOL 1328 CESTAT MAD
Permanent transfer of IPR No Circular 80/10/2004-ST, Dated 17.09.2004

  • Value of Taxable Service

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Intellectual Property Right Services, no specific provision for determination of taxable value has been provided.  However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Intellectual Property Right Services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

  • Abatement

No abatement has been granted to any person liable to pay service tax under the Section.

  • Exemptions available

  1. General Exemption
  • Small Service Provider

Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

  • Import of Technology

Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986. 

  • To Foreign Diplomatic missions and their personnel

Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

  • Services by TBI or STEP

Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

  • Services provided to SEZ

Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

  1. Specific Exemptions: 

Notification No. 17/2004-ST, dated 10-9-2004- exempts the taxable service provided by the holder of intellectual property right to any person, in relation to intellectual property service, from so much of the service tax as is equivalent to the amount of cess paid towards the import of technology under the provisions of section 3 of the Research and Development Cess Act, 1986 (32 of 1986) in relation to such intellectual property service.

  • Related Circulars and Notification:

  • Circular no. 80/10/2004-S.T., dated 17-9-2004(relevant extract)

9.1  Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. in India, legislations are made in respect of certain Intellectual Property Rights (i.e., IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services.

9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a ‘holder of intellectual property right’ so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs.

9.3 In case a transfer or use of an IPR attracts cess under section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable (refer Notification No. 17/2004-S.T., dated 10-9-2004).

 

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By | 2017-04-06T10:48:59+00:00 September 19th, 2016|Service Wise Implications|

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